No. of Recommendations: 1
I was a little confused by this paragraph on p.14 in the letter:
"It will be many years until we know the final tally from BHE’s forest-fire losses and can
intelligently make decisions about the desirability of future investments in vulnerable western
states. It remains to be seen whether the regulatory environment will change elsewhere."
The subject of this paragraph is losses from forest fires, but then at the end of the paragraph Buffett talks about regulatory environment. Is he suggesting that regulators should somehow allow a given ROE, even after large penalties from fire-related lawsuits? I don't see how this would be possible. The penalties from lawsuits are too large to cover with rate hikes. Utilities will have to take the loss and then slowly recover the loss in the future. Either that or do like PG&E did and declare bankruptcy. Or am I misreading the paragraph?
My own thinking is that power transmission or distribution in fire prone areas is not a good business. As Buffett states on p. 13,
"Underground transmission may be required, but who, a few decades ago, wanted to pay the staggering costs for such construction?"
